NOCC supports the U.S. physical power and natural gas markets through a comprehensive and market-neutral credit risk management solution for market participants whose transactions result in energy going to delivery.
These “physical market participants” trade forward contracts that are intended for delivery as distinguished from buying and selling futures, or other commodity derivatives which are typically offset or settled before delivery.
Today’s physical energy markets have evolved through rudimentary trading customs and delivery mechanisms that create credit risk ‘silos’ across the transaction landscape and through the delivery process. These practices therefore result in separate collateral "silos" that are held by the Regional Transmission Operators (RTOs), and multiple bilateral counterparties throughout a transaction's life cycle.
NOCC operates as a market neutral "riskless principal" wherein it enters matching positions with different counterparties from forward contract through delivery and settlement for both gas and power.
The key advantages by using NOCC as the single counterparty are:
Increased trading opportunities
- Access to a diverse set of physical counterparties including major US generators which gives participants greater access to more prices
- Eliminates the need to evaluate credit risk of each counterparty
- Daily valuation by NOCC improve market transparency
More efficient use of capital
- Ability to free up bilateral credit lines
- Ability to net transactions across multiple counterparties and regions, and use receivable balances to reduce collateral requirements of any tenor
- Ability to reduce RTO collateral exposure by transacting through NASDAQ
Reduced counterparty credit risk
- Neutral, independent Risk Management - NOCC is impartial and the nature of the risk-less principle business provides a strong incentive to maintain a default-free operation
- Efficient Portfolio Margining System and Management of Counterparty risks via full collateralization
Streamlined back-office operation
- Ability to leverage NASDAQ’s world class technology to support STP which ensures that trades automatically are confirmed and routed to back-office departments and risk management systems